INDIA-NEPAL RELATIONS: BACKGROUND, CHALLENGES, WAY FORWARD

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Context:

India and Nepal Relations faces challenges from ongoing border disputes and concerns regarding Chinese influence.

India-Nepal Relations

Historical foundation: Ancient connections, the Hindu epic Ramayana mentioning Lord Ram's marriage to Princess Sita of Janakpur (modern-day Nepal).

• Hinduism and Buddhism have deep roots in both nations, with Lumbini, Buddha's birthplace, located in Nepal.
• Linguistic similarities (Nepali and Hindi share Sanskrit roots) strengthen these ties.

Post-independence: Diplomatic Relations started with the 1950 Indo-Nepal Treaty of Peace and Friendship, which granted mutual rights on residence, property, movement and trade.

• An open 1,751 km border (across five Indian states) and deep cultural links have strengthen ties.
• Nepal’s monarchy lasted until 2008, when a Maoist insurgency and democratic movement led to a secular republic. Throughout these changes, India remained engaged via development aid and dialogue.

People-to-people links: Share religion (Hinduism and Buddhism), language and family ties (“roti-beti” bonds), with free movement across the open border

Recent Geopolitical shifts: Nepal signed a Belt and Road Initiative (BRI) framework with China in 2024.Why is Nepal important to India?

Strategic location: Sharing borders with five Indian states (Uttarakhand, UP, Bihar, WB, Sikkim), serves as a buffer against external threats from the north, vital for national security.

Geography and resources: Himalayan rivers (e.g. Gandak, Koshi, Karnali) rise in Nepal and flow into India, vital for irrigation and hydropower. Nepal’s high terrain holds vast hydro potential – Nepal exports electricity to India .

• Nepal exports up to 1000 MW electricity to India out of 3,200 MW it is produce.

Cultural and religious ties: Nepal have many important Hindu and Buddhist pilgrimage sites.

• Both countries are majority Hindu (80%), promoting common cultural heritage.
• Shared temples and festivals strengthen bonds and goodwill across the open border.

Economic Relations: India is Nepal’s largest trading partner and export market.

• India comprises about 64.1% of total trade of Nepal, equating to $7.87 billion (FY 23-24); $7.041 billion of exports and $829.71 million Import
• India supplies most of Nepal’s imports (petroleum, machinery, vehicles, cereals) and provides transit access to third-country trade.  
• Nepali exports to India include edible oils, tea, coffee, Pashmina, and power.

Security cooperation: Open border requires cooperation against cross-border crime and insurgency.

• India trains and equips Nepali security forces, and over 32,000 Gurkhas serve in the Gorkha regiments of the Indian Army.
• Joint military exercises (e.g. Surya Kiran) enhance counter-terrorism and disaster-response interoperability.
• Close coordination has helped India during disasters (e.g. 2015 Nepal earthquake relief) and in safeguarding the border.
• Nepalese nationals in conflict zones have been evacuated along with Indian nationals under ‘Operation Ganga’ (Ukraine) and Operation Sindhu (Israel and Iran).

International Support: Nepal support for India's permanent membership in United Nations Security Council (UNSC), reflecting its role in regional and global diplomacy. 

India’s Policy towards Nepal

Neighbourhood First: India treats Nepal as a special partner under Neighborhood First policy. Frequent high-level visits and strategic dialogues keep communication channels active.

Development partnership: India is Nepal’s single largest development partner. Since the 1950s, India has provided grants and lines of credit for infrastructure (airports, roads, hospitals).

• Post-2015 earthquake, India pledged $1 billion for reconstruction (including a $250 m grant).  
• Through a Government-to-Government agreement (2024), India is building community projects (schools, clinics, roads) under High-Impact Community Development (HICDP) programs.
• As of 2024, India funded 1,009 ambulances and 300 school buses for Nepal.
• India’s policy is to focus assistance on infrastructure and capacity-building at the grassroots.

Connectivity and energy: India has jointly launched road and rail links (e.g. the first broad-gauge train service to Biratnagar, and freight service to Kathmandu).

• Cross-border oil and fuel pipelines (Motihari–Amlekhgunj phase‑I completed 2019; phase‑II and Siliguri–Jhapa route underway) ensure continuous fuel supply.
• A Joint Vision on Power (2022) commits to shared hydro project development. For example, the 900 MW Arun-3 hydropower plant (run-of-river on Arun River) is under construction, and agreements for projects like West Seti (750 MW).  

Digital and institutional engagement: Nepali citizens enjoy visa-free travel to India, and India offers 1,600+ scholarships yearly to Nepalis (over 38,000 beneficiaries since 2001) in fields like engineering, agriculture and medicine.

• India expanded digital connectivity by launching UPI mobile payments in Nepal from March 2024.
• Institutional ties (judicial MoUs, educational partnerships) are regularly upgraded: for example, Supreme Courts signed an MoU in April 2025 for legal cooperation, and Indian institutes (like IIT, IIM) are discussing satellite campuses in Nepal.

Regional collaboration: Both are founding members of SAARC, BIMSTEC and hold joint interests in subregional groups (BIMSTEC Transport Connectivity).

Why India is important for Nepal?

Trade Dominance: India remains Nepal's largest trading partner, accounting for about 64% of its total trade. 

Transit Facilities: As a landlocked country, Nepal relies heavily on India for transit access to the sea via Indian ports like Kolkata and Visakhapatnam, facilitating its third-country trade.

Remittances: Millions of Nepalese citizens work in India and contribute to Nepal's economy through remittances, support families, boost foreign exchange reserves, and fuel domestic consumption in Nepal.

Investment: More than 150 Indian ventures are operating in Nepal in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries. Over 35% of Nepal FDI is from India.

• India is the top source market for tourism in Nepal, making up for 30% of 1.5 million tourists in 2024.

Development Assistance: India provides development assistance to Nepal, focusing on grassroots infrastructure development, health, education, and rural and community development.

Infrastructure Projects: India built infrastructure projects in Nepal, including highways like the Tribhuvan Rajpath, parts of the East-West Highway, and cross-border rail links. 

• Tribhuvan Rajpath (Kathmandu-Pathlaiya Highway) is Nepal's oldest and first modern highway, built with Indian assistance in 1956.

Energy Cooperation: India and Nepal have a long-standing partnership in the power sector, including joint hydropower projects, like the 900-MW Arun-III and the Phukot Karnali Hydroelectric Project.

• India plans to import 10,000 MW of clean energy from Nepal over the next decade.

Fuel Supply: India serves as the sole supplier of petroleum products to Nepal. The Motihari-Amlekhgunj petroleum pipeline is South Asia's first cross-border pipeline, ensuring a regular supply of oil. 

Defence Cooperation: India assists the Nepal Army in modernization, provides equipment and training.

Gorkha Regiments: India recruits Nepalese citizens into its Gorkha regiments, a long-standing tradition reflecting the unique defence ties.

Challenges and Obstacles in India-Nepal Relations

Border disputes: Territorial dispute over 372-sq-km area that includes Limpiadhura, Lipulekh and Kalapani at the India-Nepal-China trijunction in Uttarakhand’s Pithoragarh district.

• Nepal’s 2020 political map claims Kalapani–Lipulekh–Limpiyadhura (Uttarakhand) and Susta (Bihar), areas.
• In August 2025 Nepal’s Parliament unanimously condemned India’s reopening of the Lipulekh trade route (agreed with China without Nepal’s consent) as a violation of sovereignty.
• Such disputes fuel nationalist sentiments and mistrust.

Unequal Treaty perceptions: Many Nepalis view 1950 Friendship Treaty as uneven, which granted India privileges (open border, defense cooperation) over Nepal.

• Several Nepali leaders periodically call for its revision, hinders full mutual confidence.

Sovereignty and intervention fears: Nepalese public opinion suspects Indian interference in Nepal’s politics. Past incidents – like the 2015–16 open-border blockade (during Madheshi protests and Kathmandu’s new Constitution promulgation) – left lasting grievances.

• Events like 2016 demonetization left Nepalese unable to exchange Rs 1000 and Rs 500 notes, compounding grievance.
• Nepalis emphasize sovereign equality, concern over India's Big Brother Attitude, resisting any deals (like infrastructure or river projects) perceived as “unilateral”.

Internal political instability: Nepal’s frequent government changes and coalition politics complicate policy consistency. For example, Since Nepal became a democratic republic in 2008, there have been 14 prime ministers, with multiple changes in government.

• Some smaller parties openly advocate restoring the monarchy or Hindu statehood, diverging from India’s secular-democratic model, make sustained engagement difficult.

Chinese influence: Nepal formally joined China’s Belt and Road Initiative (BRI) in 2017, and signed a 2024 BRI Framework. China funds roads, pipelines and airports in Nepal, on concessional terms.

• China allows Nepal to use Chinese sea and land ports for third-country trade through a Transit and Transport Agreement (TTA) and its operational protocol, reducing dependency over India.
• Growing Sino-Nepal ties risk reducing Nepal’s strategic “buffer” role for India, and increasing threat from China's String of Pearls policy.

Economic asymmetries: Nepal runs a large trade deficit, concern over stalled projects (e.g. Arun-3 delays) and bureaucratic hurdles.

• Nepal remains economically vulnerable – making it susceptible to influence.
• Infrastructure gaps (limited rail, underused waterways) and trade barriers (e.g. customs bottlenecks) hinder growth.

Security concerns: Porous border allows free movement of people but also opens risks of insurgent and criminal transit.

• Militant groups from India’s northeast and illicit trafficking (drugs, arms) exploit the open border.
• Sashastra Seema Bal (SSB) is responsible for guarding borders with Nepal and Bhutan.

Way Forward for India to Strengthen India-Nepal Relations

Quiet border diplomacy: Avoid public comment on sensitive borders. Engage in back-channel talks (Track II diplomacy) and joint surveys to resolve disputes peacefully (similar to India-Bangladesh’s 2015 Land Boundary Treaty).

• Focus on practical solutions (e.g. local administration or land swaps) while respecting each side’s core concerns. For example, India might reaffirm the 1816 treaty’s spirit by reviewing maps with Nepali experts, showing goodwill.

Mutual empathy and respect: Acknowledge Nepal’s need for equality and space, avoiding any hint of coercion.

• Educational and media exchanges can debunk stereotypes: expert stress that many tensions stem from lack of mutual empathy.
• Civil society dialogues, student programs (expanding the 38,000+ scholarship alumni network) and people-to-people travel will build trust over time.

Non-interference and consultation: Continue official non-interference policy, all infrastructure or policy decisions affecting Nepal (like river projects, road routes) should involve Nepali consultation.

• Similarly, Nepal should channel its governance issues through official dialogues, avoiding anti-India rhetoric in domestic politics.

Accelerate connectivity projects: Prioritize completing the Raxaul–Kathmandu railway line, expanding inland waterway use (e.g. Sahibganj–Bhagalpur barge services), and upgrading highways.

• These projects lower transport costs and integrate markets.
• Expanding UPI and other digital links will deepen daily interactions.

Economic partnership: Encourage more Indian private investment in Nepal (industry, tourism, startups), to reduce Nepal’s dependence on imports.

• India could facilitate Nepali exports (like carpets, tea) by easing non-tariff barriers.
• A balanced economic dialogue – through a Joint Economic Forum – can target a more equal partnership.

Leveraging international support: India can mobilise international partners to help Nepal sustainably develop. For example, coordinating with the EU or US can provide alternatives to Chinese funding and improve project transparency.

• Multilateral development banks should be engaged for large projects.
• India and Nepal can also model regional cooperation (e.g. jointly operating cross-border road/rail in BIMSTEC or SAARC) to show their commitment.

Cultural and institutional outreach: Promote sister-state and sister-city programs beyond the current three (Kathmandu-Varanasi, Lumbini-Bodhgaya and Janakpur-Ayodhya).

• Regular people’s diplomacy (youth forums, artists’ exchanges) will ensure that ties remain “beyond governments.”

Strengthening security ties: Regular joint military exercises and disaster drills, and share intelligence on common threats.

• Formation of a joint Indo-Nepal counter-terror or anti-narcotics task force could reassure both sides.
• Cooperation – framed in mutual benefit – will stabilize the shared border.

Conclusion

India and Nepal have a long-standing friendship, but challenges like border claims and economic imbalances need to be addressed through dialogue, empathy, and equitable partnership. 

Source: INDIAN EXPRESS